- For the first half SG&A expenses decreased $1.1 million but as a percent of sales increased 150 basis points.
- Store operating expenses for the non-comp group of stores increased $6.4 million while operating expenses for the comp stores decreased $5.3 million.
- Advertising decreased $5.1 million and store closing costs increased $1.2 million.
- The non-recurring legal and professional expenses were partially offset by reduced share based compensation expense.
Other income increased for the first half due to increased credit card income.
The effective income tax benefit rate of 31.3% for the first half reflects the statutory federal and state rates but due to the small taxable loss, certain book tax differences and FIN 48 adjustments have a more significant effect on the rate.
For the year Stein Mart expects the effective tax rate to be approximately 40%. For the first six months of 2008 Stein Mart incurred a net loss of $1 million or $0.02 per share as compared to net income of $10.3 million or $0.24 per share for the first six months of 2007.
During the second quarter Stein Mart had generally better performance from the ladies casual area, ladies dresses and special occasion and men’s furnishings, but continued weakness in linens, gifts and ladies career.
In ready-to-wear, the ladies business has benefited from the fresh fashion in the company’s new Attitudes department where Stein Mart pulled together a branded, primarily denim-based assortment with updated styling but retaining a missy fit.
Stein Mart is delivering some like-minded career pieces into the Attitudes area for fall and the customers are responding positively to that.
This company continues to get a better response from novelty tops, basic pants and layering pieces and Stein Mart has had some success with dresses, swim and special sizes. In ladies accessories novelty gift giving items, hosiery and small leather goods were productive.
In men’s dress furnishings and accessories did well particularly the men’s gift business which the company intensified beginning pre-Father’s Day and which has continued to perform well. Men’s moderate has been a bright spot as well were updated looks in denim and related tops. Stein Mart has put a higher priority on going after branded merchandise and that’s more evident in the men’s area.
Stein Mart continues to struggle with two important areas that have been challenging for the whole industry - the home area, particularly linens, and the structured career apparel in both men’s and ladies.
The company has reduced the overall home inventories and the square footage devoted to home has been downsized in some stores. Home is also an area where the company has been successful securing more branded merchandise for the assortment. The business is being driven primarily by either basics, such as pants, dress shirts, and layering pieces, or by novelty and status, such as fashion denim and novelty tops.
Stein Mart is planning consecutively for fall and holiday but hopes to capitalize on those things that are working - basics, novelty apparel, and gift giving items.
Key questions and answers from the second quarter fiscal 2008 earnings call conducted by Stein Mart, Inc. (SMRT) on August 25, 2008.
Robin Murchison (SunTrust Robinson Humphrey):
What is your estimate of the traffic impact on the same store sales figure? How much do you think that accounts for cost?
Michael Ray: We won’t get into the specifics of that but traffic is definitely down in the stores where we track traffic.
Robin Murchison (SunTrust Robinson Humphrey):
Are there any positive metrics in terms of either AUR or units per transaction that you can share with us?
James Delfs: All of those metrics are in the negative. The units are down as well as the average unit retail both for the quarter and for the half.
Robin Murchison (SunTrust Robinson Humphrey):
When you look out to the department store sector and the ability that the department store sector has to weigh heavily on promotions, it seems like last year and in some prior years just for example a lot of times Macy’s has their big monthly sale the same weekend as maybe the 12 hour sale at Stein Mart, is there any way to get around whatever big promotional event that you are planning for a month with what some of the bigger guys are doing, or separate them somehow?
Linda Farthing: In this environment we’ve had to be much more promotional. We’re not up against Macy’s in many of our markets and we would, the 12 hour sale is one of our best sales of the year and those have continued to be strong for us.
Robin Murchison (SunTrust Robinson Humphrey):
On Ann Taylor second quarter earnings call they talked about moving away from the suited traditional wear-to-work category, do you think that has any impact or do you think that that has any impact on how you might plan your business on a go forward basis?
William Moll: Structured sportswear both men’s and women’s has been difficult. I do believe we have a nice career business in Stein Mart and what we try to do is relax a lot of these jackets and relax some of the sweater offerings so where cardigans are doing very well right now, when traditionally you might have a more structured jacket that would do better. So yes, we are seeing exactly what’s taking place on that avenue and I think the new Attitudes area as the career part comes in this month and next month, you’ll see those changes.
Mark Montagna (CL King & Associates):
During your prepared remarks you mentioned you have different merchandise initiatives at various stages, can you possibly talk about some of those. Any updates on other initiatives that you might have?
William Moll: We did do a jewelry test out there and it was inconclusive in some ways, it did show that we have a table opportunity in certain gift giving products for fourth quarter which we’ve gone ahead and moving forward on that on how we purchase tables and the product and getting prepared for the ever important fourth quarter. The kid’s test went in around the first part of August so it’s pretty inconclusive but its up and running in all 40 stores. One of our largest tests was Attitudes which we’ve been pleased with at this point in time. So those are the main initiatives that we talked about and have up and running.
Mark Montagna (CL King & Associates):
Talking about tailoring assortment to customer research, can you expand on that topic? Is that driven by, is it as simple as just going into more brands?
Linda Farthing: Our customer research did say that they wanted to see more brands. They also said that they wanted to see a greater expanded size range. They mentioned size is an issue. They mentioned wanting many of our customers responded that they wanted to see younger looking Attitude product which is the Attitudes area is a result of that. That kind of summarizes some of the key findings that we’ve had. The size issue did come up and we have addressed that in our automatic replenishment program.
Mark Montagna (CL King & Associates):
You mentioned non-merchandise procurement, some changes in contracts, can you expand on that so I can try to gauge the magnitude of expense savings that you might have?
James Delfs: Our focus has been on the indirect spend which are the non-merchandise procurement functions and we have been successful in renegotiating certain contracts. There will be some benefit in the back half of this year but obviously it’s in 2009 that we’ll recognize a full year’s worth of benefit off of those improvements and those contractual changes.
